Divest of fossil fuels for better returns: study

Divesting your client’s portfolio of fossil fuel investments to reinvest in a low-carbon economy might be good for the environment, but is it also good for returns? A study from the University of Waterloo aimed to find out.

In a post from The Conversation, an academic and research news resource, Olaf Weber, professor of sustainable finance and banking, and Chelsea Hunt, project manager of monitoring and impact measurement, discuss their analysis of different divestment strategies as applied to the TSX 260. Both Weber and Hunt work at the University of Waterloo.

The pair’s simulation showed that after divestment of fossil fuel investments, portfolio value continued to grow, leading to better performance than the index.

“Divestment increases risk-adjusted financial returns even in a fossil fuel–heavy financial market such as Canada,” the authors say. “The socially responsible investment strategy that is mainly ethically driven also happens to be beneficial from a financial point of view.”

Read: Why and how to address clients’ ESG values

For full study details, read the post from The Conversation.

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